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- - **Financial econometrics - exam question**
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Financial econometrics - exam questionConsider the following simultaneous system of equations, $\displaystyle \[\begin{array}{l} {y_t} = \beta {x_t} + \delta {p_t} + {u_t}\\ {x_t} = \gamma {y_t} + \theta {q_t} + {v_t} \end{array}\]$ where p t and q t are exogenous variables. (a) You are interested in estimating the equation for y t . Please describe in a precise and detailed manner how you would achieve a consistent estimator. [5 marks] (b) The equations stated above for y t and x t are the structural equations. What is the reduced-form equation for y t ? [5 marks] |

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